Australia should drop its ties to the British monarchy after the reign of Queen Elizabeth II ends, the nation's prime minister said today.

Julia Gillard, whose centre-left Labour party has long argued that the country should become a republic and stop having the British monarch as its head of state, said that Australia had "deep affection" for the Queen but that she should be its final monarch.

"What I would like to see as prime minister is that we work our way through to an agreement on a model for the republic," Gillard told reporters in Townsville.

"I think the appropriate time for this nation to move to be a republic is when we see the monarch change. Obviously I'm hoping for Queen Elizabeth that she lives a long and happy life, and having watched her mother I think there's every chance that she will."

The issue is a contentious one for Australians, many of whom are British immigrants or descendants who still feel strong loyalty to Britain and the Queen.

Many members of the opposition Liberal party are monarchists, though the party has also had high-profile republicans. The current leader, Tony Abbott, Gillard's opponent in Saturday's national elections, said he sees no need to change the status quo.

He said: "I think that our existing constitutional arrangements have worked well in the past and I see no reason whatsoever why they can't continue to work well in the future.

"So while there may very well be future episodes of republicanism in this country, I am far from certain at least in our lifetimes that there is likely to be any significant change."

Australia is a member of the British Commonwealth of former colonies. As head of state in Australia, the British monarch serves a largely symbolic and ceremonial function, and is represented by the governor general.

Gillard's party wants to replace the governor general with a president. Parliament would retain its power to rule, with the president a largely symbolic figure.

During national debates in the 1990s, the issue divided Australians between monarchists and republicans. A 1999 referendum asked Australians if they wanted to replace the monarchy with a president elected by parliament. The idea was voted down.

Some critics accused then-prime minister John Howard, a staunch monarchist, of ensuring victory for those opposed to change by including the method of the president's election in the question. Many republicans wanted a popular vote for president, not a vote by parliament.